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“In view of the festival season and extending the benefits to customers across all segments, we have reduced our MCLR by 10 bps across all tenors,” the bank said in a statement.

With this reduction, the one year MCLR, to which all the lending rates are linked to, is set at 8.05 per cent as against 8.15 per cent earlier. The cut in MCLR follows a 25 bps reduction in repo rate by the RBI last week.

It is remarkable that the marginal cost of funds-based lending rate (MCLR) is the minimum interest rate that a bank can lend at. MCLR is a tenor-linked internal benchmark, which means the rate is determined internally by the bank depending on the period left for the repayment of a loan.

MCLR is closely linked to the actual deposit rates and is calculated based on four components: the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium. The RBI introduced the MCLR methodology for fixing interest rates from April 1, 2016.